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A New Look At Old Highfliers


Economic Trends

A NEW LOOK AT OLD HIGHFLIERS

Remember the so-called "nifty-fifty," the cadre of such fast-growing, heavyweights as Xerox, IBM, and CocaCola, whose stocks soared in the early 1970s on the wings of huge price-earnings ratios only to collapse with a thud in the bear market of 1973-74?

While the consensus is that the nifty-fifty are a classic example of unwarranted speculative fever, Jeremy J. Siegel of the University of Pennsylvania's Wharton School disagrees. His study in the Journal of Portfolio Management finds that the group has actually outperformed the broad stock market over the past 25 years.

Looking at total returns, including dividends, Siegel finds that the nifty-fifty badly lagged behind the overall stock market in the second half of the 1970s but have since outperformed it significantly. Indeed, he calculates that $1 invested in the stock market at the start of 1971 would have grown to $14.82 by mid-1995 but that it would have hit $17.38 if invested in a "frozen" equally weighted portfolio of the nifty-fifty (as identified by Morgan Guaranty Trust Co.). And it would have grown to $20.33 if the portfolio had been adjusted each month so that each of the 50 stocks remained 2% of the total value.

"With the benefit of hindsight," says Siegel, "the nifty-fifty as a group seem well worth the price paid by investors during the bull market of the early '70s."BY GENE KORETZ


Steve Ballmer, Power Forward
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